The Walking Dread: Why Indonesian hotels need an overbooking strategy
Written by: Tracy Dong, Lead Advisor, APAC, IDeaS Revenue Solutions
No hotel in Indonesia likes having to walk a guest due to an overbooking situation – just ask any front desk manager who has to deal with irate customers when they have been informed the room they booked is not available, and they have to be relocated. Walking a paying guest can be hard and unpleasant, so why do hotels need to overbook in the first place?
Consider this all-too-common scenario: A high-profile international trade fair is occurring in your city and your hotel has been sold out for more than two weeks. There’s not a single room left within a 10-kilometre radius. Your forecasted revenue numbers for the week are significantly outperforming the actual bookings from the same period the year before. However, as the morning reports rolled in, your hotel only finished at 96% occupancy opening day which led to a revenue underperformance compared to your forecast.
Rather than trying to figure out who’s to blame for this situation, hoteliers should instead see the situation as an opportunity to enhance the property’s systems and technology and rethink their overbooking strategy. From a revenue management point of view, to maximise occupancy and revenue during peak demand dates, overbooking can be a necessary evil driven by several internal and external factors.
Internal Factors:
No-Show: Paying guests may turn out as a no-show on the arrival day due to various reasons, which leads to empty rooms at a hotel
Cancellation/Wash: Prior to arrival day, hotels typically have cancellations from transient bookings or group wash. If hotels are not able to pick up bookings to compensate cancellations or wash, it will impact on hotel revenues
Extension/Contraction: Besides no-shows and cancellations, revenue managers should track in-house guests’ extensions, especially for hotels with a high portion of long-stay guests. Although in-house guests’ extensions are subject to availability, it has to be taken in consideration when setting up overbooking scenarios
External factors:
If a hotel has a sister property to relocate their walked guests to based on a pre-negotiated rate, then they can be a lot more flexible with their overbooking strategy. However, if a hotel has to relocate guests to a non-affiliated or competitor hotel, then management has to be very careful. The overbooking risks in this situation are compounded when the market demand is high, such as during a major event and guest relocation price, or ‘cost of walk,’ is prohibitively expensive.
The practice of overbooking weaves art into science to calculate risks against their rewards, and today’s advanced revenue management systems help hoteliers analyse and produce decisions for a customised overbooking strategy. Below are some considerations and insights hotel revenue management systems can provide to maximise strategic overbooking opportunities:
- What is the expected transient wash for each market segment?
- What are the booking windows for transient business? Hotels could use revenue management systems to analyse booking pace by market segment at various days to arrival.
- When is the hotel’s group cut-off and how well are group blocks managed? Is the hotel consistently managing groups by days-to-arrival and adjusting overbooking accordingly?
- How is the hotel’s room type overbooking strategy established? Are they deploying room type overbooking strategies only when they’re expected to sell out? Deploying room type overbooking strategies over non-sold-out periods can be an effective way to maximise property yield in both need and busy periods.
- Is the hotel’s room type overbooking strategy static all year long, or is it deploying different strategies by day-of-week or season?
Hoteliers need to understand overbooking is a long-term strategy that requires constant review. By analysing overbooking numbers months in advance, hotels can better compensate for expected group wash with high-paying transient guests
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Consider a hotel that only overbooks their base room type all year long. Assume this hotel has a significant rainy season and struggles to find business to fill their weekends. However, during this period, they do remain consistently busy with corporate travel during the week. How can they adjust their overbooking strategy to accommodate for this distinct day-of-week need? Perhaps their base room type is open for generous overbooking on the weekends (keeping their hotel as competitively priced as possible), but a conservative strategy is employed during the weekdays to encourage bookings into upgraded room types. If the new strategy helps a hotel book just five upgraded room types every weekday at a $75 upcharge, they’ve pulled in over an additional $80k in annual revenue by selling the same amount of rooms.
And at the end of the day, it’s critical that hoteliers focus on their net maximum revenue. The aggressiveness of any overbooking strategy needs to be balanced with an understanding that net revenue for a night can be impacted by high or frequent walking of guests. Sometimes, it may be a better net revenue result to be one or two rooms short of a sell-out than to pay for a number of replacement rooms in another hotel for previously booked guests.
It’s also extremely important to evaluate how well the hotel’s front desk handles guest recovery. One of the greatest opportunities afforded to any front desk is the ability to take a guest problem (such as being walked to another hotel) and convert it into guest loyalty. To do this, though, hoteliers need to ensure that hotel staff are properly supported and trained to accommodate walking guests. Guest recovery in ‘walking’ situations should also be supported by amenities; complimentary room upgrades or no-walk / VIP statuses for future reservations.
In today’s world, it’s not enough to book a reservation for every room a hotel has to sell – and not overbooking can result in lost revenue and missed occupancy at the property’s highest price-point where profits can be maximised. When overbooking is established strategically through analytics, hotels can better understand the wash and cancellation patterns of their market segments. This means hotels can then plan ahead to overbook with exceptional revenue results.